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Distressed Mexican Driller Bids for Pemex Contract

(Bloomberg) -- Latina Offshore Ltd., which missed a debt payment in January last year, is working along with one of the consortia invited by Petroleos Mexicanos to submit offers for oil-services contracts, according to people with direct knowledge of the situation.

The Bermuda-based holding company, wholly owned by Constructora y Perforadora Latina SA, has decided to make a bid and is assembling the offer papers due Mexico’s state-owned oil giant, the people said, asking not to be named as the plan isn’t public.

A Latina spokeswoman said the company is currently servicing its debt in a timely manner.

Pemex has invited a short list of groups, one of which includes Latina, to submit offers this month for 13 offshore platforms and 176 kilometers of pipelines, two of the people said. Seeking to ramp up production, Pemex is targeting a 22 percent increase in 2019 capital expenditures to a total of $13.7 billion. Most of the budgeted outlays will be allocated for upstream operations: 78 percent will be aimed to boost output, with the remainder aimed at downstream operations, according to a company presentation shown to investors in New York last week.

A Pemex spokeswoman declined to comment by phone on the names of the consortia invited to bid as the auction is private.

Last Bullet

Perforadora Latina has hired the legal service of BGBG Abogados law firm to help the company obtain at least one of the contracts, one of the people said. The contract is crucial for Latina as the auction comes at the time its bonds are trading at distress levels.

Yields on the first-lien bonds due in October have risen to 60.15 percent since the company announced on Jan. 3 2018 that it would miss that month’s interest payment and seek a waiver from bondholders. A BGBG representative declined to comment by phone.

Offshore Drilling Holding SA is also seeking partnerships to submit offers, a third person said. The offshore services provider has $950 million of bonds reaching maturity in 2020. ODH, as well as Perforadora Latina, will have to adapt their vessels or seek partnerships with other companies as these projects don’t require deep water drillers, this person said.

While ODH spokespeople didn’t reply to calls and emails seeking comment, analysts following the company are betting the offshore driller will be rescued by Pemex.

"We are still bullish on the the 8.375% first-lien secured notes of ODH," distressed analyst Stan Manoukian, founder of Independent Credit Research LLC, wrote to clients in a Jan. 8 note. "Under the worst case scenario, the market has been creating the company’s vessels at multiples substantially more attractive compared to creation multiples for vessels of comparable companies. Additionally, but not less importantly, investors should keep in mind the 45 plus years of history of relationships between the company and Pemex."

Mexico’s President Andres Manuel Lopez Obrador has made boosting the country’s oil output a priority. Pemex’s crude production has collapsed from a 2004 peak of 3.4m barrels per day to less than 1.8m.

"We will start to overcome the fall in oil production at the end of this year," Lopez Obrador said at his daily morning press conference on Thursday. He has said that his administration goal is to produce 2.4 million barrels per day by 2024.